Upstart Holdings Inc. has had one of the roughest rides of 2022, with its once-high-flying stock sinking more than 80% so far on the year.
The company, which uses artificial intelligence in loan decisions, has struggled amid a changing landscape for lending, as the management team has acknowledged that rising interest rates mean some potential borrowers don’t get approval for loans, or decline to take them out after seeing the quoted rates. Additionally, Upstart
has seen some of its funding partners pull back due to concerns about the market climate, prompting the company to do more lending off its balance sheet.
Upstart Chief Executive Dave Girouard, however, expressed optimism about the future of the business while speaking Tuesday at a Goldman Sachs conference, calling recent challenges a mere “speed bump” on the company’s journey.
“ “In the long run, we’re a business that has generated cash since we’ve been public, and very, very optimistic about where we’re going.” ”
— Dave Girouard , Upstart CEO
“We don’t underestimate it,” he said, according to a transcript from Sentieo. “There’s certainly parts of our business that we want to improve and make better, and we’re very aware of those, mostly on the funding side of our business, but in the long run, we’re a business that has generated cash since we’ve been public, and very, very optimistic about where we’re going.”
Girouard said his view of recent economic events had “nuance” and was “a little different from what you might hear in this general-purpose business press.” He explained that “blue-collar America has been through a very significant cycle over the course of the pandemic,” as workers received several stimulus payments and then saw the government stop providing such support in 2021.
That “was important and really impactful to the people we serve,” he continued.
Speaking at a Piper Sandler conference Wednesday, Chief Financial Officer Sanjay Datta said that Upstart was in the “minority” among public companies in that “the borrower that’s at the heart of our mission is a less affluent borrower.”
Girouard thinks that the economic “event” that has involved blue-collar workers is “behind us.” A potential recession, were it to occur, “is likely what we would term a ‘white-collar recession,’ just a different type of phenomenon,” he said.
“There’s two events that might be a little bit related, but are distinct and separate in time, and unclear whether that future will come,” according to Girouard.
Nonetheless, he acknowledged that Upstart’s business is being pinched on the funding side as some lenders cut back, as well as from a volume perspective as “prices are higher in our marketplace.” Despite that backdrop, he said that Upstart’s “credit is performing exceptionally well.”
Speaking about Upstart’s decision to fund more loans off its balance sheet, he offered that over the next year to 18 months, Upstart would “like to see probably some double-digit fraction of our capital flowing through our platform, being committed.”
Doing so will mean “the loans will be priced at a bit of a premium because there’s some sort of consideration there that makes that capital more permanent,” he explained. “So there’s different structures those could come under.”
CFO Datta denied that Upstart was trying to “fill the gap” with its balance-sheet lending, and said the company was, rather, seeking to show to funding partners that it believes enough in its model to put its own money on the line.
“There’s a use for us, a very surgical one, where in a dislocation, where we have asymmetric knowledge about our model, and people want to see signs of confidence in order to take to their credit committees, we can play that role,” he said.